CMS holds ACA risk adjustment payments following legal ruling

The Centers for Medicare & Medicaid Services announced July 7 that it will no longer make adjustment payments to insurers until litigation regarding them is resolved, further destabilizing the individual and small group markets created by the Affordable Care Act.

The risk adjustment payment uses statewide average premiums to draw money from health insurance plans within a state that have low levels of high-need patients and funnels that money to plans in that state with high amounts of high-need patients, as a way to minimize adverse selection and to spread risk.

The government was set to make a budget neutral payment of $10.4 billion for the 2017 plan year. But in a rare Saturday announcement, the agency said July 7 that the reason for putting the risk adjustment payments on hold was differing legal opinions on the validity of the payments.

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In January 2018, the U.S. Court for the District of Massachusetts ruled that the CMS acted within its authority in promulgating its methodology based on statewide average premiums. A month later, the U.S. District Court for the District of New Mexico ruled that the methodology was invalid and bars the CMS from collecting or making payments.

The CMS filed a motion to reconsider following the New Mexico verdict, a hearing of which was held June 21.

“We are disappointed by the court’s recent ruling,” CMS Administrator Seema Verma said in a statement. “As a result of this litigation, billions of dollars in risk adjustment payments are now on hold. CMS has asked the court to reconsider its ruling, and hopes for a prompt resolution that allows CMS to prevent more adverse impacts on Americans who receive their insurance in the individual and small group markets.”

“We are very discouraged by the new market disruption brought about by the decision to freeze risk adjustment payments,” insurance trade group America’s Health Insurance Plans said in a statement. “The decision comes at a critical time when insurance providers are developing premiums for 2019 and states are reviewing rates. ... It will create more market uncertainty and increase premiums for many health plans.”

Likewise, the Blue Cross Blue Shield Association predicted higher premiums if the agency does not make payments.

““Without a quick resolution to this matter, this action will significantly increase 2019 premiums for millions of individuals and small business owners and could result in far fewer health plan choices,” BCBSA said in a statement. “It will undermine Americans’ access to affordable coverage, particularly for those who need medical care the most.”

The action comes as the Department of Justice is choosing not to defend the ACA in court against a lawsuit looking to declare the individual mandate unconstitutional in a case that would also eliminate the guaranteed issue provisions of the Affordable Care Act.